Open Web vs. Network Effects

Attending a FOO Camp last week that focused on the open web got me thinking a lot about data and interoperability.  This came up again yesterday when discussing the network effects of a business.  I realized that network effects are inherently the products of closed systems--a setup whereby being the 100,000,000th user of one service provides more utility than being the 10th user of another, even if the latter is an otherwise superior.  Everyone else is on the first system, so you pretty much have to go there for any kind of person to person interactions and accept a sub par service.  Not only does that enforce network effects, but it means that first mover advantage and  landgrabbing becomes a more effective strategy as well.

In a completely open web, this wouldn't matter.  Reading, writing, and graph discovery would all be done through standards accessible to any other kind of service.  Instead of winning by being first or big, you win by providing more value, being easier to use, or being more innovative.

Interestingly, this provides more value to everyone, because it increases the overall usage of the system.  Services become better, market penetration of the whole system gets higher, and value creation moves up the stack.  Julien Genestoux showed me Superfeedr and how he was essentially creating an open marketplace for realtime feeds.  Gowalla publishes all their checkins to it, and if Foursquare wanted to, they could just consume all of it and incorporate it into their experience.  You wouldn't know what service people were using to check in.

That's the way texting is now, but it wasn't always like that.  It used to be that you couldn't text anyone who wasn't on your carrier.  As soon as it opened up, not only did texting take off, but lots of value was created on top of texting as a platform.  Texting is still a huge business (as are many "commodity" businesses), but it also now supports an thriving ecosystem.

Does that mean that network effects are a bad bet?  Probably not, since walls often take time to come down--but more and more as they crumble and lock-n disappears, services will win based on other aspects.  User experience, branding, customer service and effective customer acquisition are all growing importance as ways to create sustainable value. 

The new network effect may not be that you're actually locked in, but that you heard about something first, and it seemed like everyone else was using it... and you've got better things to do than to keep switching services all the time when you're getting a great customer experience with the one you have.